Anaheim Losing Out on Disney Growth

The hard hats and construction signs around Disneyland will be gone soon. The new Grand Californian luxury hotel opens in January along with an entertainment zone called Downtown Disney. The new park, California Adventure, debuts in February.

But the city of Anaheim, which spent $546 million on improvements, finds itself several years behind schedule in creating its vision of a world-class urban resort that would stretch beyond Walt Disney Co.’s properties.

The city has renovated its Convention Center, which is now the West Coast’s largest. It’s also built a huge garage on Disneyland Drive and refurbished a two-mile area with lush beds of lilies, gingerbread bus stops and rows of palm trees along new streets.

It has failed, however, to attract new high-end hotels, upscale restaurants and unusual entertainment hot spots that would erase the image of inexpensive motels, T-shirt shops and fast-food joints outside the Magic Kingdom. Those projects are mired in financial and design difficulties.

Nearby Garden Grove, meanwhile, has stolen some of Anaheim’s thunder by building hotels more quickly and cheaply--picking up so-called bed tax revenue that Anaheim had expected to get.

Anaheim will miss out on more than $6 million a year in new tax revenue it had anticipated, mainly from hotel projects.

“The development is happening. It’s just happening in Garden Grove,” said commercial real estate broker Alan X. Reay, whose Atlas Hospitality Corp. tracks hotel deals. “It’s the area that’s going to reap the benefit of what Anaheim did for Disney.”

With six new hotels less than a mile away from Disneyland, Garden Grove has added 1,657 rooms--roughly the extra number Anaheim had expected to have ready next year to take advantage of the predicted crush of tourists. Only about 900 rooms have been, or will be, added in and around Anaheim’s resort area.

The delays have worried Anaheim officials enough that they ordered a new financial study to reassess how much revenue the city can expect without the new rooms. They hope existing hotels can increase occupancy levels and raise rates to make up the shortfall. The study is due within a month.

City officials concede that the development picture painted three years ago, when they sold $510 million in improvement bonds, was overly rosy. They opted, for instance, to rely on a study predicting that 5,550 hotel rooms would be built by 2007, disregarding a separate study saying that the area would attract less than half that number by 2005.

But, they say, with advance Convention Center bookings up sharply and Disney’s expansion on target, it’s just a matter of time before their resort fills out.

“We have to draw our timeline out a little. We probably won’t see construction as soon as we want. [But] we really do believe we’ll see quality hotels in the next five to 10 years,” said Jeffrey Stone, Anaheim’s budget manager.

A ‘Multidimensional Travel Resort’

Anaheim’s improvements are designed to entice developers to build unusual attractions for tourists and, most important, new hotels with luxury rooms.

High-priced rooms can improve tax revenue dramatically. Anaheim’s bed tax is 15%, the steepest in California. Visitors spending $100 a night for a room have to pony up $15 a night more for the city. By contrast, Garden Grove’s bed tax is 10%.

Anaheim got its chance to upgrade the seedy sideshow surrounding much of Disneyland in the early 1990s when it built the Arrowhead Pond about two miles away and beat out Long Beach as the site for Disney’s second West Coast theme park.

The aim was to become a “multidimensional travel resort” instead of a “one-dimensional tourist stop,” Deputy City Manager Tom Wood said. The lavish improvements create “upside potential” for more development, he said--even if it takes longer to arrive than officials had hoped.

Four years ago, the city-sponsored proposal for Sportstown on the Edison Field parking lot envisioned hotels, shops, offices, orchards, a produce market, youth sports fields, a Western village with a rodeo arena and a monorail extension from Disneyland. Tinseltown Studios, an Oscars-style dinner theater, was the only entertainment project built, and it failed. The building is being leased for concerts as the Sun Theatre.

Gotcha Glacier, a $130-million indoor sports center, is the latest proposal for the site. But design and financing snags have stalled it. The unique facility would house a snowboarding slope, an ice rink, wave pools and areas for skateboarding, rock climbing and skydiving. A Jillian’s entertainment center would have restaurants, bowling, billiards and other attractions.

The biggest proposal is Pointe Anaheim, a $500-million entertainment mall with three full-service hotels across Harbor Boulevard from Disneyland. Like Gotcha Glacier, Pointe Anaheim was to open at the same time as Disney’s new park. But partly because of Disney objections to its design, the project took a year longer than anticipated to gain city approval. Another factor was hotel financing, which generally has been hard to find. For Pointe Anaheim to be viable, experts say, those hotels will have to charge $140 or more a night, which tourists may not be willing to pay for non-Disney rooms.

So as time wore on, lenders became more inclined to wait to gauge Disney’s success before funding another major development.

“I think everyone is waiting to see now what happens with the second gate,” said Disney board member Raymond L. Watson, vice chairman of the Irvine Co. “And why not wait?”

Garden Grove was quick to see the opportunities years ago and put together an enticing package for hotel developers.

The city looked at industry studies predicting that several thousand new hotel rooms would be needed with Anaheim’s and Disney’s expansions, said Matthew Fertal, Garden Grove’s director of community development.

The city saw that high land costs near Disneyland would make it difficult for Anaheim to build affordable hotels. Most vacationers don’t want to pay a lot for lodging, Fertal said.

Scraping together $35 million, and at one point threatening to take over a senior-citizen trailer park through eminent domain, Garden Grove purchased 28 acres of land barely a mile down the road from Disneyland and the Anaheim Convention Center.

Fertal and his staff spent two years seeking out developers and begging them to consider building there. They succeeded in attracting six moderate-priced hotels with 1,657 rooms. An additional 280 rooms and suites probably will be added to the existing Hyatt Regency Alicante next door.

“If we were going to capture any of it, we wanted the first 2,000 rooms, not the tail end, because we are a little farther away,” Fertal said. “We had to be extra aggressive. No one came to Garden Grove and said, ‘We want to build a hotel.’ ”

He doesn’t think visitors will mind that they’re not in Anaheim.

“The two tallest hotels are still under construction,” he said. “But when they’re in and the lighting and landscaping is in . . . this will be the place to stay.”

Reay said that had those new hotels been built in Anaheim, they would have generated $5.6 million a year in taxes--nearly the entire extra revenue Anaheim had anticipated.

In return for free land and tax rebates over seven years, the developers are required to keep the hotels operating while Garden Grove recovers its land costs through new tax revenue.

The new hotel rooms will cost from about $85 to $120 a night, Fertal said. That’s far below the $250 minimum price posted at Disney’s Grand Californian, being built inside the new park, but more than many of Anaheim’s existing tourist motels.

Garden Grove also has tried to encourage growth down the gritty stretch of Harbor Boulevard just south of its new hotel district. A proposal for an entertainment mall called Riverwalk proved unworkable, but Fertal said the city would still be eager to redevelop the area if an entertainment-oriented project appeared feasible.

From Anaheim’s perspective, “It seems like Garden Grove pretty much gave away the store,” said Bret Colson, Anaheim’s spokesman.

Anaheim isn’t contemplating similar favors to developers. “We’ve provided them a half-billion [dollars] in incentives already with the new Convention Center and all the new landscaping and infrastructure improvements,” he said.

Anaheim Mayor Tom Daly said Garden Grove’s hotels, which replaced several eyesores in that city, may work out as a complement to Anaheim’s plans in the end.

“It helps if the town next door is clean. If it makes money and they spend it on their city, that’s good. They need parks and libraries just like we do,” Daly said.

Still, he said, Anaheim needs to make sure it gets what it expected from the resort. “The Convention Center needs to be a success. The Disney project needs to be a success. I think it will happen.”

City Improvements Benefit Disney

For Disney, which aims to duplicate its success in attracting tourists to Florida for days on end, the lack of nearby hotel and entertainment competition could be a boon.

Its $1.4-billion expansion includes a $159-million shopping and entertainment zone called Downtown Disney and the $186-million luxury Grand Californian hotel, which Disney expects will skim the cream off the Anaheim visitor market.

If hotel demand proves heavy, Disney already has city approval to add 250 rooms to the 750 under construction. And in briefings to workers, it has disclosed tentative plans to build its own less-expensive hotels nearby.

Much of Anaheim’s spending paid for improvements that directly benefit Disney, including $90 million for the massive five-story garage. Disney will operate the 10,000-car parking structure and keep the profits.

The city also lowered the former West Street, renamed Disneyland Drive, and installed a pedestrian bridge over it. The bridge will allow the Downtown Disney entertainment mall to spill across the street, linking Disneyland, the new park and the new hotel to the existing Disneyland Pacific and Disneyland hotels.

Times correspondent Judy Silber contributed to this report.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Border Battle

Many non-Disney developments proposed around Disneyland in Anaheim have stalled, while neighboring Garden Grove has moved quickly to build a strip of hotels in its Harbor Boulevard corridor. A look at the status of the projects: *

*

Hotels in Garden Grove’s Harbor Boulevard district that are new or under construction:

*--*

HOTEL ROOMS Embassy Suites 372 Marriott Renaissance 371 Crowne Plaza 384 Homewood Suites 203 Hampton Inn & Suites 165 Hilton Garden Inn 162

*--*

Sources: Atlas Hospitality Group, Garden Grove Agency for Community Development, Times reports